Q4 2023 Assertio Holdings Inc Earnings Call
Participants
Matt Kreps; IR Contact Officer; Assertio Holdings Inc
Heather Mason; Interim CEO; Assertio Holdings Inc
Ajay Patel; SVP, CFO; Assertio Holdings Inc
Paul Schwichtenberg; SVP, Chief Commercial Officer; Assertio Holdings Inc
Thomas Flaten; Analyst; Lake Street Capital Markets, LLC
Jim Sidoti; Analyst; Sidoti & Company, LLC
Presentation
Operator
Thank you for standing by, and welcome to the Assertio Holdings Fourth Quarter and Full Year 2023 Results Call. I would now like to welcome Matt Kreps, Investor Relations for the company to begin the call. Matt, over to you.
Matt Kreps
Thank you, and good afternoon, everyone. Thank you for joining us today to discuss the studio's Fourth Quarter and Full Year 2023 financials. The news release covering our results for this period is now available on the Investor page of our website at investor.assertiotx.com. I would encourage you to review the release and the tables in conjunction with today's discussion. With me today are Heather Mason, Interim CEO; Ajay Patel, Chief Financial Officer; and Paul's Schwichtenberg, Chief Commercial Officer.
In just a moment, Heather will opening remarks and provide an overview of the business than Asia will cover our financial results and guidance followed by Paul with an update on our commercial strategies. After that, we will take a few questions from our covering analysts. During this call, management will make projections and other forward-looking statements regarding our future performance. Such forward-looking statements are not guarantees of future performance involve risks and uncertainties, including those noted in this afternoon's press release as well as the start of filings with the SEC. These and other risks are more fully described in the Risk Factors section and other sections of our annual report on Form 10 K. Our actual results may differ much in the forward looking statements and Assertio specifically disclaims any intent or obligation to update these forward-looking statements except as required by law.
So within that and with that, I will now turn the call over to Howard Please go ahead.
Heather Mason
Welcome, everyone, to our fourth quarter results and thank you for joining today. I'm excited to be here with Ajay, our CFO, and Paul, our Chief Commercial Officer, to give you a comprehensive update on Assertio our business in our direction. I'm here to share our solid operating results for fourth quarter and a strong balance sheet at year end our strategy for low Novadigm, our most important growth driver, our outlook for industry and including Q4 actual resort results and our 2024 assumptions. Our lower operating expense base designed to maximize the commercial contribution and cash flow generation opportunities. Our continuing plans on Corporate Business Development and importantly, updated guidance for the year ahead as studios direction and financials have shifted as a result of the Vodafone acquisition and generic competition Brinderson, we remain focused on cost efficient operations and cash generation with Rover done as the primary growth driver. Our goal today is to frame future performance expectations. Given this evolution, I do want to thank all of our stakeholders, investors and partners for their patience. While we have navigated several challenging months in 2023.
I'd also like to acknowledge the talented hard-working team at Assertio who have demonstrated exceptional dedication to success in delivering the results reported today. Having worked with them over the past few months. I am confident in this team's ability to deliver on these and future plans. As you know, I've been an independent member of Assertio Board since 2019 in my prior professional roles focused on commercial execution and operational leadership by increasing product sales and share. Aligning expenses with growth and managing balance sheet efficiency are highly relevant to Assertio today. In addition, we've made good progress in our search for a permanent CTO. The expectation is that this new leader will continue to deliver against our strategy of existing asset asset growth, lean operating expenses and acquisition that fit our go-to market model. To that point, the results we released this afternoon demonstrate the durability of our studio business model. We are reporting sequentially increased EBITDA and revenue. We are thoughtfully managing interest in volume and price. Given generic competition, we remain operating cash flow positive. And today we also shared our guidance for the year ahead, with sales expected to be in the range of $110 million to $125 million and EBITDA in the $20 million to $30 million range. To reiterate, we are excited to have Rover done in our portfolio for its growth prospects, which have been brought to life by name meetings with key customers and in working with our sales and marketing organization. And as a reminder of the broader organization, Ajay became our CFO in November, and Paul has now formally transitioned to Chief Commercial Officer, leveraging his in-depth knowledge of Assertio and strong commercial finance background. I'd also like to highlight the news included in today's release that sig KIRK will be joining our Board of Directors in April, Singh joined Assertio as an external adviser in January, bringing extensive business development, finance and strategic expertise, most recently served as Executive Vice President overseeing Corporate Business Development at Allergan. During his 11 year tenure. He led more than 75 deals from small tuck in asset acquisitions and licensing to larger M&A transactions driving both revenue and market cap growth. I look forward to working with sig in his capacity as a Board member.
And with that, I'll pass the call over to Ajay, who will cover the financials.
Ajay Patel
Things other than today, I would like to cover our financial results for the fourth quarter of 2023 and provide some background and context on our financial guidance for full year 2024.
Before I began as it relates to our comparison of the fourth quarter to the prior year fourth quarter, I want to establish at the 2022 fourth quarter was an all-time high for Henderson, which contributed to those overall results since then, both in this and and Cambia had generic entrants. And we have acquired rollover data, which is a new growth driver. For the current year fourth quarter, our total sales were $32.5 million, including Rolvedon sales of $11 million and Indocin sales of $10.8 million.
Rolvedon sales improved sequentially since closing of the acquisition on July 31st, 2023. We have now addressed the channel inventory issue highlighted in the prior quarter as well as streamlined and focused our commercial team to continue to grow this asset. Indocin sales declined both sequentially and compared to prior year fourth quarter due to the entrance of a generic competitor in August 2023. Gross margin in the fourth quarter was 70%, decreased from 88% in the prior year fourth quarter of the change inventory step-up amortization contributed 9 percentage points of the decrease in margin with the remaining reduction, primarily due to change in sales mix from the addition of Rolvedon and decrease in higher margin in this and in Cambia.
Turning to operating expenses, SG&A expense was $24 million, increased from $13.7 million in the prior year fourth quarter. The fourth quarter included approximately $9.5 million in higher operating expense due to the addition of spectrum. Adjusted operating expense in the fourth quarter was $21.8 million. GAAP income from operations for the fourth quarter was a loss of 3$2.3 million, which included a few noncash adjustments. We recognized a $41 million impairment charge for intangible assets, which primarily pertain to Indocin and a $17 million benefit for the change in fair value of the Indocin contingent liability. Both adjustments were primarily driven by the impact of generic competition.
Adjusted EBITDA is a good indicator of the operating performance of our core business. Q4 adjusted EBITDA came in at a positive $4.5 million, demonstrating the durability of our business model, even in a transitionary period. Please refer to our press release for a detailed reconciliation of our adjusted EBITDA results crossing over to the balance sheet.
Cash at year end was $73.4 million and debt was $40 million, which consists of 6.5% convertible notes due August 2027. We generated a positive $5.7 million in cash flow from operations during the fourth quarter. As Heather mentioned today, we announced guidance for 2024. We expect net product sales in a range of $110 million to $125 million. Historically, we have now provided product level guidance, but we recognize that that Q4 and the start of 2024 has been a dynamic period, including revenue composition and continuing our OpEx run rates. Therefore, for modeling purposes, we wanted to provide additional product level contacts for will be done in addition, on a onetime basis as part of our 2024 plan, we expect to Rolvedon net sales to approach $60 million. Paul will provide additional context on our overtime hours for 2024 we expect Indocin net sales in a range of $18 million to $25 million. We expect continued unfavorability as a result of generic competition throughout 2024 both from a pricing and volume.
Although we don't have visibility into the generic approval process for purposes of our 2024 planning, we have assumed an additional generic entrant. From an operating results standpoint, we anticipate adjusted EBITDA in a range of $20 million to $30 million. Gross profit will be impacted by lower sales base and declining contribution from Indocin, which previously contributed higher margins. We expect adjusted operating expenses for the total company to be between $65 million and $70 million. When we announced the Spectrum acquisition, we expected a $55 million increase in operating expenses on top of the legacy Assertio organization of about $40 million to $45 million. Subsequent to the fourth quarter, Assertio further refined its combined organization. And now anticipates combined operating expenses to this much lower total range. These numbers are approximations and now formal guidance, but we hope that they will help you fully appreciate our focus on operating cost efficiency and aligning expenses to sales.
I would also note that as we develop the plan for 2024, we were very mindful of the change in revenues and gross profits and responded with an intense focus on ensuring our planned costs and investments were supporting growth in Rotterdam. As Heather mentioned, we expect to remain cash positive in 2024 and based on our adjusted EBITDA outlook, we are targeting to end the year with a cash balance of between $90 million and $100 million.
Closing out my remarks, I have a couple of notes that are important to keep in mind as well.
First, I would remind everyone that the plan I've just highlighted makes no assumption about the potential impact from possible BD transactions, which we continue to seek and evaluate any action on that front would require an update to our outlook.
Second, our shelf registration statement recently expired. So we have taken the customary action of filing a new registration statement today to renew our availability under that instrument. That renewal action is not an indication of any pending transaction or other activities. I'll now turn the call over to Paul to discuss our commercial organization and strategy.
Paul Schwichtenberg
Thank you, AJ. I'm pleased to be here today to update you on our commercial growth plans in particular for roll that up. We are very excited to have this product in our portfolio and see excellent growth prospects in 2024 and after the past several months have been a learning process as we work to several issues we inherited, including short-term incentives that were offered to customers, which resulted in excess inventory in the channel at the end of the second quarter of 2023, it was this excess inventory in the channel that resulted in the lower than expected roll that on net sales in the third quarter of 2023. In Q4 23, we have seen a return to normal inventory levels consistent with the studio's inventory management practices and the resulting net sales of $11 million reflecting a 38% increase over the pro forma third quarter. Even with this increase, the fourth quarter was impacted by further channel inventory reductions. That issue is now behind us and we are managing inventory and sell through in line with the Assertio derived business practices that have made us successful on our other products going forward, our focus was to ensure alignment between demand and ex-factory sales, which will allow us to better forecast role that on net sales going forward. We believe this practice, along with our overall growth strategy, will enable us to generate consistent, predictable growth throughout 2024 and ultimately take the asset to over [$100 billion] in sales beyond 24.
Rolvedon has now acquired an estimated 30% share in our current served markets, and we see opportunity to continue to expand our market share through our excellent contracting and commercial access team capabilities. Additionally, role that Avon has seen sequential quarter-over-quarter demand growth since launch, and we expect this to continue into 2024. We will continue to invest in properly in this growth opportunity, both in people and resources. We will have in-person promotion that will be focused on customer expansion, and we intend to leverage our nonpersonal digital promotion models to further drive overall awareness. But we see this as a starting line. And just the early innings and the opportunity for this asset at the core of this strategy is our excellent pain person, oncology sales contracting and commercial access teams that will drive and enhance our market position, augmented by our innovative nonpersonal promotion model and virtual resources.
As you saw in our press release today, we announced the continued evolution of our overall commercial organization, which included a reduction in the size of the organization. And I shift the resources to support our expansion to new customers and drive our overall growth strategy. These changes were carefully considered and the optimized structure, reflecting a full commercial team of 32, including 16 field sales professionals will ensure that we continue to maximize our overall profitability.
I would also like to recognize our commercial team that has remained dedicated and focused since the Spectrum acquisition and express my sincere excitement to work with them going forward. I am truly impressed by this team and their dedications are well with them. I hope this gives you a clearer picture of why we are excited about this important asset and how we expect to continue to grow our base.
I'll also share one final thought on welded on. As I know, many of you have maintained interest and the potential role that to be a solution for same-day dosing, an important consideration to clinics and patients. Trial enrollment has accelerated, and we anticipate results or later this year, we will provide updates on same-day dosing in the future as information becomes available.
With that, I'll turn the call back to the operator for Q&A from our covering analysts.
Question and Answer Session
Operator
(Operator Instructions) Thomas Flaten, Lake Street Capital Markets.
Thomas Flaten
Thanks. I appreciate you taking the questions. Paul, maybe I can just start with you. You mentioned a reduction I think in the footprint I heard 16 reps, but you also mentioned a shift in resources to new customer opportunities or I'm sorry, I'm paraphrasing you there. Could you maybe expand on what exactly that means?
Paul Schwichtenberg
Yes, I think the answer there, Thomas, is that we are trying to align our commercial sales organization to support our existing customer base and allow us the opportunity to be able to expand to new customers. What I would say is that our commercial team has been very focused on cultivating relationships with both existing customers and new customers. And we want to make sure that we're aligned so that we can grow our volume with those existing customers and reach out further to the new customers. It gets them onboard.
Thomas Flaten
And maybe some learnings now that you've had the product under your belt for a while. What is it or who is there profile of customer that is switching to roll down the are there some learnings there that you could share with us kind of who is the ideal customer at this point?
Paul Schwichtenberg
I would say the ideal customer are those customers that on I would say, have had challenges in the oncology space in terms of on a cost and we bring a value proposition to the table that's important to them.
Thomas Flaten
And then you mentioned the new customers. Are those are we still focused on the clinic? Or are you kind of spreading your wings beyond the traditional clinic, which is where spectrum was started with this.
Paul Schwichtenberg
The answer Thomas is both. We've had great success in the clinics. As I mentioned in my script, we had a 30% market share that we've achieved recently in the clinic space. And as I mentioned, we think we can grow that space. But in addition to that, we are looking at expanding outside and reaching out to new channels that will help us grow the product.
Thomas Flaten
And then just one final one, if I may. The significance of the cut beyond the role of the Don organization can is there any commentary you can provide on that? I'm just trying to understand what the impact of the non-water Don oriented organizations.
Paul Schwichtenberg
Are you talking about in terms of the reorg?
Thomas Flaten
Yes, yes, correct. Sorry.
Heather Mason
Yes, sorry, Thomas, this is that there is minimal impact to the rest of the organization. It was really a focus of having the right size for the wealth of data and go to market work.
Operator
Jim Sidoti, Sidoti & Company.
Jim Sidoti
Sorry, good afternoon and thanks for taking the questions on. First, can you repeat what was the guidance for operating expense through 2024?
Ajay Patel
Hey, Jim. This is AJ on. So we're our guidance for EBITDA was $20 million to $30 million. And to help you baseline on operating expenses on the operating expenses, we're expecting between $65 million and $70 million.
Jim Sidoti
Okay, great. And then you gave an outlook for rolling on to them gross sales in excess of $100 million. Do you need same-day dosing to be a part of that or is that outside of same-day dosing that would be outside of same-day dosing? And if you do get some approvals with same-day dosing this could be upside to that?
Paul Schwichtenberg
That would be correct. Yeah.
Jim Sidoti
And you've talked a lot about world alone in December. So regarding the other drugs in your portfolio, are there any growth drivers there, any of those drugs that you think would be suitable significant growth going forward?
Paul Schwichtenberg
Jim, yes, we are looking at our strategy for our other assets, specifically Otrexup and Sympazan and looking for growth drivers there. We are very active on those two products, and we're going to be updating our strategy as we continue to become known, learn more about the marketplace there and where their opportunities exist.
Jim Sidoti
All right. And then in terms -- I'm sorry.
Heather Mason
It's okay, Jim. And in addition, we're continuing to look for other fixed assets, but their business model, both in our I'd say, more traditional therapeutic area agnostic mindset, but also mindful that we now have an oncology sales force and a skill set that we'd like to leverage. So we see that as another growth opportunity.
Jim Sidoti
And that would be my next question. If you are cash flow positive, if that continues to improve its priorities for cash will be at the of the mergers. Is that right? Or do you think debt paydown?
Heather Mason
I'm sorry, did I don't know that I understood the last part of your question, Jim.
Jim Sidoti
Can you talk about what your priorities are, assuming you are cash flow positive and that continues into 2025 and beyond. What's priority for cash? Is it more acquisitions? Or is it the debt paydown or combination.
Heather Mason
So our focus is to grow it, grow the number of assets that we can put into our business model. So our intention is to continue to add inorganic and growth via inorganic means. So acquisition would be our priority.
Operator
I would now like to turn the call over to Heather Mason for closing remarks.
Heather Mason
Thank you and I appreciate those of you who have joined us today. I hope that today's call is giving you a clearer picture of the excitement and commitment. We feel today, the studio based on our asset class form and the opportunities ahead in 2024, both in terms of financial outlook and the ability to continue to build our business with both current and potential new assets. We will report our first quarter earnings results in May and keep you apprised of any additional developments if you'd like to arrange an update call with management, please contact Mike net crap using his info in the press release, and we'll be happy to schedule a time and thank you all once again.
Operator
This concludes today's call. You may now disconnect.
